Chuck Mikołajczak
NEW YORK (Reuters) – The dollar lost for a second straight session amid recent strength, but the greenback remained on track to gain for a fourth straight week after this week’s data kept Federal Reserve interest rate expectations in check.
The Commerce Department said orders for nondefense capital goods, excluding aircraft, which are a closely watched proxy for corporate spending plans, rose 0.5% last month after an unrevised 0.3% gain in August and above a gain of 0.1% estimated by economists polled by Reuters.
A separate University of Michigan report showed consumer sentiment rose to 70.5 from 70.1 in October, topping estimates of 69.0, while the annual inflation outlook fell to 2.7% from a flash reading of 2.9%. , but was consistent with the final result from September.
The dollar was poised for a fourth straight week of gains as a spate of positive economic data dampened expectations about the size and pace of Fed interest rate cuts, which also lifted U.S. Treasury yields. Investors are now focusing on the government’s key payroll report due next week.
“We have made a massive recalibration of economic expectations for the U.S. and that process appears to be largely complete, the Fed’s policy trajectory looks much more reasonable, and interest rate differentials between the U.S. and other large economies are stabilizing,” said Karl Schamotta, chief strategist market at Corpay in Toronto.
“The , which measures the dollar against a basket of currencies, fell 0.02% to 104.03, while the euro rose 0.02% to $1.083.
In Europe, a German business sentiment survey on Friday showed confidence rose more than expected this month, snapping four consecutive months of declines and offering hope for a year-end respite as the economy battles industrial problems and frail global demand.
European Central Bank (ECB) President Christine Lagarde said euro zone inflation is “on track” to meet the European Central Bank’s 2% target next year, upholding the bank’s latest guidance.
The dollar also benefited from rising market expectations for next month’s victory of Republican candidate and former US President Donald Trump, which would likely lead to inflationary policies such as tariffs.
Schamotta said that while the policy should support the dollar, it may already be priced in and its negative effects, such as inflation, could hurt consumer sentiment and weaken the dollar more than markets expected two weeks ago.
According to CME’s FedWatch Tool, markets estimate a 95.6% chance of a 25 basis point cut at the Fed’s November meeting, with a 4.4% chance that the U.S. central bank will keep rates steady. The market was fully pricing in a cut of at least 25 bp a month ago, with a 57.4% chance of a 50 bp cut.
Against the Japanese yen, the dollar strengthened by 0.13% to 152.02. The pound sterling strengthened 0.13% to $1.2989.
Japanese voters were due to go to the polls on Sunday to take part in the general election, and opinion polls showed that the ruling Liberal Democratic Party (LDP) could lose its dominance of more than a decade, which could complicate the Bank of Japan’s monetary policy plans ( FUNK).
The BOJ is scheduled to meet next week and is expected to maintain ultra-low interest rates next week, which will likely signal a less dovish policy outlook due to receding US recession fears and the need to keep speculators from putting too much pressure on the yen.
Another potential setback for the BOJ was data that showed core inflation in the Japanese capital in October fell below the central bank’s 2% target for the first time in five months.
